• Ex-AG: 'Definite option' as Bahamas at 'tipping point'
• But Gov't 'not pursuing currency switch at this time'
• DPM: B$ liability conversions 'not a simple switch'
By NEIL HARTNELL
Tribune Business Editor
An ex-attorney general says full dollarisation of the Bahamian economy must "be on the table" as the country faces "a tipping point" due to the devastation inflicted by the COVID-19 pandemic.
Alfred Sears, who held the post during the 2002-2007 Christie administration, told Tribune Business that the unique challenges that The Bahamas now faces merited a "closer look" at the concept of replacing the Bahamian dollar with its US counterpart.
"We are already moving to dollarisation, but we need to look at that even more closely," Mr Sears said, "especially as we move to a national debt of $9.5bn. It has to be on the table. We have to think in terms of stability. COVID-19 has taken all the normal matters of macro financing off the table.
"The Bahamas has never been in a position where the national debt is almost equal to GDP, where revenues are insufficient to meet the Government's necessary obligations, and where we have to borrow in order to pay civil service salaries.
"This is a new frontier for The Bahamas. The normal that we knew is not coming back. The world we knew in March 2020, where we were looking at seven million tourists coming, primarily off cruise ships, that world is not coming within two years or probably even more," he continued.
"We have to pivot now. We cannot wait to pivot two years from now. There will be no external reserves left. This is a fantastic opportunity for The Bahamas, but we need the imagination and we need the courage to create a new platform for the national economy."
While the US dollar currently operates in parallel to its Bahamian counterpart, full dollarisation as advocated by Mr Sears would see it totally replace the latter as the only currency in use in this nation.
Such a move has been previously discussed at various intervals by economists and others, but The Bahamas has so far shown little sign of making such a move. To-date, only Panama and several US satellite territories have opted for full dollarisation, with such a substitution often used as a means of achieving economic stability when a domestic currency loses value to hyperinflation and other problems.
But Mr Sears said: "I see it as a definite option. I'm a nationalist, but I think we have to begin to redefine the macro economy of The Bahamas and we have to certainly recalibrate the relationship with the US. This process is going to require us to do some recalibration that ought to have been done many years ago...
"This is a tipping point. It's a tipping point where if we don't tip in the right direction the downward surge will be so precipitous and rapid it will be difficult to arrest. This is a tipping point, and why I say it's a strategic opportunity. Why do we have to wait until we're put into a situation where we have to devalue as opposed to seeing dollarisation as a one-shot deal?"
One financial industry source, speaking on condition of anonymity, said giving up the Bahamian dollar would effectively cede control of Bahamian monetary policy to the US Federal Reserve and its setting of interest rates.
They added, though, that The Bahamas currently enjoys little monetary policy flexibility anyway because this is geared solely towards the balance of payments, and preserving the one:one peg with the US dollar via always ensuring the foreign currency reserves are maintained at sufficient levels.
Suggesting that dollarisation would effectively remove the hook, or strait-jacket, on which Bahamian monetary policy is hung kept, the source called for more debate on the issue and added: "I've always argued we should be dollarised and move to that as soon as we can."
However, K Peter Turnquest, deputy prime minister and minister of finance, yesterday told Tribune Business that dollarisation is not something the Government plans to pursue. He added that it was "not as simple" as many think, given that The Bahamas would need sufficient external reserves first before it could convert all its Bahamian dollar deposit liabilities into US currency.
Central Bank data for August showed $8.157bn in demand deposits and notes in circulation versus $2.127bn in external reserves, highlighting this problem. "It's something we all keep in the back of our minds," Mr Turnquest said of dollarisation "but it is not something we are pursuing at this time.
"Everyone thinks stopping using Bahamian dollars is an overnight switch, but it's not as simple as that. All the assets and liabilities have to be converted. It's a huge challenge, coupled with the risk of devaluation in the process. It's not something you can make an arbitrary or rushed decision on."